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Finding Business Financial Fitness: Business Loan Options Explored
You've arrived at the right address! Welcome to 7 Park Avenue Financial
Financing & Cash flow are the biggest issues facing business today
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
CONTACT US! Direct Line = 416 319 5769
Email = sprokop@7parkavenuefinancial.com
How to Choose the Right Business Financing Path for Your Growth
Introduction to Business Financing in Canada
Business financing loan and finance options in Canada, unfortunately, leave many business owners/entrepreneurs and financial managers doomed to a 'trial and error' approach to their funding needs when they are attempting to source business credit.
How then do you come out on top with business lenders when it comes to your capital/cash flow needs for business financing and the variety of business loans available in the marketplace? Let's dig in.
Navigating the landscape of business loan options can be a daunting task for many entrepreneurs and business owners.
The right financing solution not only provides the capital needed for growth but also aligns with the company's financial strategy, ensuring sustainability and profitability.
From term loans and asset-based lending to innovative online financing and government-backed programs, understanding the variety of options available is crucial. This knowledge enables businesses to leverage financial products that best suit their needs, promoting long-term success and stability in a competitive marketplace.
Factors to Consider in Business Finance Potential Solutions
Business finance as it relates to capital needs from a bank or business lender is all about understanding current and future performance needs. Key factors that you need to consider when assessing finance needs include:
- Sales
- Working Capital needs
- Asset requirements
- Cost of financing - Business Loan Rate Of Interest
We're told that timing is everything, including when it comes to a small business financing loan and business lending in general, and to that, we'll add knowing (and understanding) your alternatives.
Working capital, as an example, is a common business need - it funds your inventory and receivables and staffing as an example.
Capital Structure and Debt Management
Larger firms are always considering their 'capital structure' which is often a more informal project when it comes to businesses in the SME (small to medium enterprise space. More simply stated, the owners and financial managers in 'SME COMMERCIAL FINANCE' assessments have to consider how much 'debt' they can obligate their company to when it comes to a company loan or company loans in general. As they quickly discover, the 'leverage' that comes with debt is a two-edged sword!
However, those 'debt' and 'cash flow' options are always less expensive than giving up a percentage of ownership when it comes to small business financing in Canada.
Exploring Business Financing Options
At 7 Park Avenue Financial, we're quick to point out to new clients that Canadian Business financing is not a one-size-fits-all solution.
Term Loans and Their Benefits
Term loans are a common need in many companies. They provide long-term capital and both the term of the loan and repayment are identified and known to the company.
For businesses that have good predictable cash flow and stable or growing sales, these loans are a solid solution for many needs within the finance domain. Capital from term loans is typically used to purchase new assets or fund growth and marketing, and in some cases might include a merger and acquisition scenario.
Working Capital Facilities
The other end of the spectrum in business finance and company loan needs revolves around working capital facilities.
Here's where your short-term needs are addressed for day-to-day operations, providing the capital you need based on your buildup in inventory or receivables, as well as addressing the cyclicality of many industries. Cash flow and working capital loans or monetizations provide a bridge the company is looking for in addressing internal and external factors that affect the use of cash.
Alternative Financing Options
Many firms have turned to online lenders, merchant advances, and short-term working capital loans to address immediate cash needs.
These loans are quickly approved, and readily available, but come with much higher interest rates as well as somewhat unique repayment terms. Loan amounts are often based simply on a percentage of your annual sales with a typical 15-20% ratio of the maximum loan amount to your annual sales revenue.
While not for every business, they have certainly filled a gap in addressing financing needs for smaller firms who previously had pretty close to no access to capital based on their inability to meet stringent bank requirements around sales, profits, cash flow, collateral, etc!
Asset-Based Financing Growth in Canada / The Rise of " ABL"
Asset-based financing has risen to the top of commercial lending in Canada as far as growth and popularity.
Financing the balance sheet for firms that have fixed assets, good sales, receivables, inventory, and even real estate has provided a multitude of a uniquely tailored approach to business financing. Whether it's a 250k facility or loans in the many millions of dollars, asset-based financing has proven to work as well as save many companies in almost every industry.
One of the most popular forms of 'asset finance/alternative finance' is invoice factoring, allowing businesses to immediately cash flow their accounts receivable and eliminate the waiting period for collections. Factoring comes in many forms these days, and the terminology can be confusing for many firms not familiar with the ins and outs of accounts receivable finance. Expert advice is highly recommended!
At 7 Park Avenue Financial, we are big fans of CONFIDENTIAL RECEIVABLE FINANCING, allowing firms to bill and collect their receivables without the 'notification' that comes from traditional factoring solutions.
Equipment Financing and Sale-Leaseback Solutions
Equipment financing and sale-leaseback solutions also provide capital to meet asset purchase requirements. These days almost any asset can be financed via an equipment lease or equipment loan - whether that be manufacturing assets, technology financing for computers and software, rolling stock for fleets, etc. The vast majority of businesses in Canada use equipment lease solutions to acquire new and used equipment and technology.
Financing Startups in Canada / Challenges and Solutions
Startups are often difficult to finance in the Canadian marketplace, and entrepreneurs must ensure they have good business plans and cash flow projections in place, as well as understanding that banks and other commercial and alternative lenders place a significant amount of emphasis on issues such as personal credit history.
A good rule of thumb is that an acceptable credit bureau score of 650 should be in place before discussing any type of bank financing. Many startups in Canada have a history of owner 'bootstrapping' with personal resources and friends and family funding until the business is at least established and proving its business model.
A Wide Array of Financing Options
What then are the types of financing available to firms for asset and cash flow needs when it comes to a Canadian small business financing loan or balance sheet asset monetization strategies? It's probably a longer list than you might think!
They include:
Knowing what stage your company is in will often lead you to the best business financing solution. Typical categories for assessing your need tend to be 'start-up', 'growing', and 'mature mid-market'. Don't forget also that for even larger firms, there is no 'perfect’ financing and capital structure.
Key Takeaways
Understanding different loans—such as term, revolving credit working capital costs, and asset-based—enables businesses to match financing with specific goals, whether for expansion, operational costs, or asset acquisition.
Assessing financial needs involves analyzing current and projected finances to determine the amount and type of funding required.
This approach ensures businesses choose options that align with their capacity for repayment and growth strategies, providing a foundational understanding of how to navigate financing decisions effectively.
Conclusion: Navigating Small Business Financing in Canada
Business owners and their financial managers must consider what business loans are most appropriate for their firm, as well as having a detailed understanding of how the loan works relative to payments and lender constraints around issues such as covenants, personal guarantees, etc.
You must consider exactly why you are looking for financing - that might be a variety of reasons including growth, refinancing, restructuring, consideration of an acquisition, etc.
Applying for a business loan or a cash flow monetization strategy should be with a proper loan package and submission - that may well include a business plan, cash flow projections, management overview, and source and use of funds for the financing.
Conclusion
With every type of financing, there are risks and benefits, and all too often too little emphasis is placed on the risk and possible disadvantages, so a thorough analysis should always be put in place.
Focused on eliminating that 'trial and error' approach to business funding?
Call 7 Park Avenue Financial a trusted, credible, and experienced Canadian business financing advisor who can assist you with business advice and loan and finance options that make sense today... and in the future.
FAQ: FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK / MORE INFORMATION
How do I determine which business financing loan option is best for my business?
Identifying the ideal loan option requires evaluating your business's current financial status, growth objectives, and specific needs for the loan, such as working capital, asset purchase, or expansion.
What are the main differences between traditional and alternative lenders?
Traditional lenders, such as banks, usually offer lower interest rates and longer repayment terms but have stricter eligibility criteria. Alternative lenders provide small businesses / SMEs with more flexible options and quicker access to loan approval and funds but at higher costs than a traditional financial institution.
Can startups access loan options in Canada?
Yes, startups can access financing through specific programs designed for new businesses, government-backed loans, and alternative lenders who assess potential beyond traditional metrics. For firms without a track record or business assets as collateral these are popular programs.
What are asset-based financing options, and how can they benefit my business?
Asset-based financing allows businesses to borrow against their assets, such as inventory or receivables, providing a flexible way to access capital based on the value of those assets rather than credit history alone.
What is the role of a business plan in securing financing?
A well-crafted business plan demonstrates to lenders your business’s potential for success, outlining your market, products, and financial projections, which is crucial for securing financing.
How can I improve my chances of approval for a business loan?
Improving your chances involves building a strong credit score, preparing detailed financial statements, and presenting a solid business plan that showcases your business's potential for growth and profitability.
Are there any specific financing options for businesses in the tech sector?
The tech sector can benefit from specialized financing options, such as venture capital, angel investors, and government funding such as the SR&ED Program, aimed at supporting innovation and growth in technology.
How does the interest rate on a business loan get determined?
Interest rates are determined based on factors such as the lender’s policies, the borrower's creditworthiness, market conditions, and the specific risk associated with the business or the loan purpose.
Can I negotiate the terms of my business loan with lenders?
Yes, it's possible to negotiate terms, especially with alternative lenders. Key negotiable aspects include the interest rate, repayment schedule, a limited personal guarantee and covenants, depending on your business's leverage and the lender's flexibility.
What makes government financing programs unique compared to other business loans?
Government financing programs often offer more favourable terms, such as lower interest rates and longer repayment periods, and may include mentorship or advisory services, targeting specific sectors or startup businesses to stimulate economic growth. The CSBF program is funded at the lenders prime lending rate plus a mark up making it very competitive for small and early-stage companies for funding for items such as improving leased property.
How does refinancing work in the context of business financing?
Refinancing involves replacing an existing loan with a new one, typically to take advantage of better interest rates, consolidate debts, or alter the loan term to improve cash flow and reduce monthly payments.
What is the significance of the loan-to-value ratio in asset-based financing?
The loan-to-value (LTV) ratio is crucial in asset-based financing as it determines the maximum amount you can borrow based on the appraised value of the collateral assets, influencing the loan terms and interest rate.
